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ESG Investing, Bitcoin News for Financial Advisers

Latest for financial advisers: ESG, Bitcoin, inflation and Social Security COLA estimate

A roundup of the latest news and reports of interest to financial advisers.

Studying up on ESG: Retirement plan advisers who are using ESG in plans should not only educate themselves, but their clients and plan participants as well, says Michael Young of US SIF. He notes that there are now designations available on this topic.

SEC delays ruling on Bitcoin ETF: The agency is seeking more public comment on a proposal to list a Bitcoin exchange-traded fund on Cboe, according to InvestmentNews.

Worry, but don’t worry too much about inflation: InvestmentNews reports that inflation is the major focus of market watchers thanks to a host of unique and unfamiliar circumstances that include record government stimulus spending.

Quality Investing and Inflation: With inflation spiking as the world adjusts to the post-Covid regime, investors are naturally interested in how their portfolios might perform in an inflationary world. GMO investigates in this article the performance of high-quality equities during prior bouts of inflation.

How To Bring Younger Generations Into Your Practice: There has never been a more opportune time for advisers to reach out to clients' children, according to Financial Advisor.

Deconstructing the Complexities of Decumulation: A Pimco study analyzes the behavioral quirks that can negatively impact people in retirement.

7 Ways Clients Can Fail in Retirement: Veteran adviser and author Greg Sullivan told Financial Advisor things like divorce and second homes can trip clients up.

Regulators Launch Elder Financial Abuse Prevention Training Program: Regulators are taking steps to help advisers deal with the growing problem of senior financial exploitation, according to Financial Advisor.

BlackRock to FAs: Put 20% of Client Portfolios in Private Markets: The company’s wealth advisory unit wants advisers to reimagine the 60/40 portfolio, according to Financial Advisor IQ.

Social Security COLA Estimate for 2022 Raised to 5.3%: The annual cost-of-living adjustment, or COLA, for Social Security benefits in 2022 — usually announced in October — could be 5.3%, the highest since 2009, based on the latest Consumer Price Index announcement, according to ThinkAdvisor.

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Target Date Funds: A 'Time Bomb' in a Retirement Tool for the Masses? A letter in early May from the Senate Committee on Health, Education, Labor and Pensions to the Government Accountability Office requesting that it conduct a review of target date funds raised some eyebrows in the retirement industry, according to ThinkAdvisor.

Roth IRA Conversions: When is the Best Time? While establishing a tax-free source of retirement income is generally a smart play for any client, there are some clients who will benefit more dramatically from a Roth IRA conversion strategy — and timing does matter, according to ThinkAdvisor.

Vanguard publishes 2021 ‘How America Saves:’ In this 20th annual survey of its own 1,700 retirement plans and 4.7 million participants, the full-service plan provider and fund giant offers a detailed snapshot of plan design and participant behavior.

Be Afraid, Very Afraid, of Retiring in the 2020s: Most retirement planning software uses data or assumptions that will lead to unrealistically optimistic outcomes, considering our low-interest-rate environment, writes John Robinson.

The Rise of Digital Assets – Understanding This Emerging Asset Class: A recent Industry Insights article addresses how digital assets such as Bitcoin and other cryptocurrencies have reached the mainstream. Leaders in the wealth management and financial planning community say that financial planners need to learn about this asset class for the benefit of their clients.

Tax Tips for Bitcoin and Virtual Currency

Research of Interest

Going by the Book: Valuation Ratios and Stock Returns

The researchers study the use of firms' book-to-market ratios (B/M) in value investing and its implications for co-movements in firms’ stock returns and trading volumes.

The researchers show B/M has become increasingly detached from common alternative valuation ratios over time while also becoming worse at forecasting future returns and growth in both an absolute and relative sense.

Despite these trends, some major U.S. stock indexes and institutional funds continue relying on B/M when identifying value stocks and selecting index weights. Consistent with this reliance shaping market outcomes, the researchers find firms' stock returns and trading volumes co-move with B/M-peers (i.e., firms with similar B/M) in excess of their fundamentals, particularly among stocks held by value-oriented funds. A shift in the economy toward firms investing in knowledge and organizational capital and increasing shareholder payouts contribute to these trends. Finally, the researchers highlight simple adjustments to B/M that mitigate these issues.

Testing Methods to Enhance Longevity Awareness

Many people have only a vague notion of the concept of life expectancy and the longevity risk they face at older ages, which in turn implies that they are likely to undersave for retirement. This paper employs an online experiment to investigate alternative ways to describe both life expectancy and longevity risk, with the goal of assessing whether these can raise peoples’ awareness of possible retirement shortfalls.

The researchers also evaluate whether providing this information promotes interest in saving activity and demand for longevity insurance products. The researchers find that providing longevity risk information impacts respondents’ subjective survival probabilities, while simply describing average life expectancy does not. Yet providing life expectancy or longevity information significantly affects financial decisions, mostly regarding annuitization. Interestingly, the researchers also find that merely prompting people to think about financial decisions changes their perceptions regarding subjective survival probabilities.